What is a Trust Deed?
A Trust Deed – otherwise known as a Scottish Trust Deed, or Protected Trust Deed (more on this later) – is a voluntary agreement between you and your unsecured creditors that allows you to repay all, or more usually, part, of what you owe them.
By signing a Trust Deed, you transfer your rights to the things you own to a Trustee (who is an Insolvency Practitioner). It’ll usually include a contribution from your income, on a monthly basis, over 48 months. There are exclusions that apply to the ‘things you own’. For example, things like your TV and your car, aren’t included.
What happens when I sign a Trust Deed?
Before you sign a Trust Deed, your Trustee has to give you advice on the consequences of signing a Trust Deed and also provide you with information about any alternative options that are available to you, dependent on your individual circumstances.
For example, a Debt Arrangement Scheme could be more suitable for you. If you get debt advice, your advisor will use something called the Common Financial Tool (CFT) to assess your incomings and outgoings. If you have a high amount of disposable income after all your basic living expenses have been taken into account, then it could be that a Trust Deed isn’t the right option for you, when it comes to paying off your debts in an affordable fashion. It just depends on your circumstances and, most importantly of all, what’s reasonably affordable to you.
What is a Protected Trust Deed?
A Protected Trust Deed is what a Trust Deed is called once it’s been agreed by a sufficient number of your creditors and becomes legally binding on them all.
Once a Trust Deed becomes Protected, as long as you fulfill the terms of your Trust Deed, your unsecured creditors can’t take any action against you to recover their money or make you bankrupt. You’re ‘Protected’ by your Trustee.
It’s important to note that your secured debts aren’t included in a Trust Deed.
Just like bankruptcy, or sequestration as it’s known in Scotland, taking out a Protected Trust Deed will affect your credit rating.
How does a Trust Deed become Protected?
Once you’ve signed a Trust Deed, your Trustee will prepare a notice for publication in a public record called the Register of Insolvencies (RoI). Once this notice has been published it means that it will come to the notice of banks and credit reference agencies that you may owe money to.
Your Trustee will also write to all your creditors to ask them to agree to your Trust Deed; they’ll have five weeks to respond, if they don’t respond in this time, agreement to the Trust Deed will be assumed. Once a sufficient number of them have agreed, your Trustee will send a copy of your Trust Deed to the Accountant in Bankruptcy (AiB).
As long as enough of your creditors agree to it, your debts are over £5,000 and your agreed contributions aren’t enough to repay all of your debts in full, the AiB will then agree your trust Deed.
What will my creditors expect from a Trust Deed?
Your creditors will usually expect you to repay as much as you can reasonably afford to pay.
Until your Trust Deed is Protected, they’re not bound to accept the repayment amount that’s offered and they won’t agree to a Trust Deed unless they think you’re offering to pay as much as you can afford. If they think you can afford to pay more, than they’re very likely to reject the proposal.
If your creditors allow your Trust Deed to become Protected, it means that they’ve agreed its terms and won’t take any further action to recover what you owe them or to make you bankrupt.
What do I pay, and to whom?
You’ll repay a fixed amount, that’s based on your affordability, every month. This is made to an account that’s held in trust for your creditors by your Trustee. Periodically, your Trustee will distribute these funds in accordance with the Trust Deed.
Your creditors aren’t paid monthly, generally speaking, and it’s for this reason that it affects your credit rating. However, if you abide by the terms of the Trust Deed, you’ll make these payments for 48 months, generally, and once completed your Trustee will discharge you from your debts.
Where does the money paid into a Scottish Trust Deed come from?
The short answer is you.
Your Trustee will use any proceeds from the sale of your assets, and you’ll also be expected to make contributions from your earnings that you can reasonably make.
Your Trust Deed proposal will include the amount your Trustee has advised you to pay each month, after calculating your disposable income using the CFT.
How can I exclude my house from a Trust Deed?
If you own your house, it’s possible that you can ask your mortgage lender for their permission to exclude your house from your Trust Deed. If they agree to this, the rest of your creditors will be informed when they’re asked to agree to your Trust Deed becoming Protected.
If your creditors don’t object to your house being excluded, then you’ll keep control of it and any equity that’s built up in it.
If your creditors don’t agree to the Protection of your Trust Deed because you’ve asked to exclude your house, then you can propose another Trust Deed that includes your house. This doesn’t mean your house will be sold. You can negotiate to pay extra (after the standard term of the Trust Deed completes) to enable you to keep your house.
What if my circumstances change during my Trust Deed?
As we’ve discussed, your Trust Deed payments will be decided using the CFT, to ensure that they’re affordable for you. If, however, your circumstances change, your payments may be reassessed.
If you start to earn more, you Trustee will probably ask you to pay more. If you start to earn less, your Trustee might agree to let you pay less, or arrange for a break in your payments.
If you get new assets during the period of your Trust Deed, for example, a lottery win or an inheritance, then you have to tell your Trustee so they can assume control of them and likely use them to pay your creditors. Additionally, if you sell a house that was excluded from your Trust Deed, then any money you’re left with after paying back your mortgage and meeting sale costs will need to be passed to your Trustee, as well.
Failure to inform your Trustee if any of these things happens will count as a breach of your Trust Deed and will likely cause it to fail.
What happens to my debts at the end of my Trust Deed?
When your Trust Deed is over – usually after four years – as long as your Trustee feels you’ve met your obligations, your Trustee will discharge you from your remaining debts. This means that you will no longer owe your creditors any money, as the outstanding debts will be written off after successful completion of the Trust Deed.
Your discharge will be recorded in the RoI and you’ll be able to start rebuilding your credit rating.
Do I get my assets back when I’ve been discharged from my Trust Deed?
At the end of your Trust Deed, it’s unlikely that there will be anything left from the assets that passed to your Trustee, if applicable. This is because, as detailed above, it’s their job to sell these assets to raise funds to pay your creditors.
However, if there’s anything left at the end of your Trust Deed, it will be given back to you.
Can I be the director of a company or hold public office?
Under normal circumstances, the articles of a limited company will stop its directors from signing Trust Deeds. If you are a director of a limited company, you’ll need to check this before signing a Trust Deed.
Additionally, a lot of public bodies have rules disqualifying anyone who’s signed a Trust Deed from holding public office; again, you’ll need to check this if it’s relevant to you.
Will a Trust Deed affect my credit rating?
The simple answer to this is yes, it will.
However, it’s likely that your credit rating has already been affected if you’ve missed payments, and a Trust Deed, once completed, allows you to begin to repair your credit rating.
Will a Trust Deed affect my job?
In some industries and professions, for example, financial institutions, employers don’t allow people to sign Trust Deeds and continue to work for them.
It’s always best to check your contract or speak to your HR department to find out what the case is for you.
Who can I contact for advice about my debts and whether a Trust Deed is right for me?
If the issues discussed in this blog sound all too familiar to you, then simply fill out our contact form to find out if you qualify for debt solutions, and we’ll call you back at a time that’s convenient to you with free, no obligation advice.
Most importantly, whether you speak to us or someone like the Money Advice Service, speak to someone; don’t let your debts – and in turn, your worries – linger. Start your journey to debt-free today.